Car tax (or Vehicle Excise Duty, to give it its technical term) is changing dramatically from April 2017. As with any government budgetary tweak, there will be winners and losers when the changes are made. Now, a detailed study from Parkers has revealed who those winners and losers will be – with some surprising conclusions.
Car Tax Changes: The Background
Back in 1999, the government began to make changes to the car tax system so that people driving less polluting cars wouldn’t pay so much Vehicle Excise Duty.
To begin with there was a discount for cars below 1100cc, then in 2005, a new system was introduced with various price bandings based on emissions.
Zooming back to the present day, cars are generally far less polluting than they were. The Chancellor worked out that by next year, around 75% of new cars would be exempt from car tax. Unsurprisingly, this resulted in a revamp of the Vehicle Excise Duty system – one that according to the Parkers’ report will earn the government over £5 Billion in extra revenue by 2023.
Car Tax Changes: The New System
The new car tax system is much simpler than the current regime. There will be two Vehicle Excise Duty rates, and while one is still a zero (free) rate, it will only apply to cars with no emissions whatsoever (i.e. hydrogen or electric cars). The other standard rate, for all other vehicles, will be £140 per year.
Then come the complicated bits; Every car has a “first year rate” for when it is initially taxed. This can range from zero for electric cars, to £2000 for gas guzzlers with emissions of over 255 g/km. In addition, cars purchased for over £40,000 will attract an additional tax liability of £310 per year for years two to six of the car’s “life” – a total of £1550 per premium vehicle, regardless of how “green” it is.
The Parkers’ study suggests that many drivers of polluting vehicles will actually end up better off under the new system than before. Despite the hefty “year one” tax costs, over the course of six years owners of these cars will see their total car tax liability drop due to a big reduction in the standard rate compared to now.
The most significant conclusion from the report is the fact that over 90% of the extra tax that will be raised will come from drivers of cars with emission figures lower than 130g/km – which it’s fair to say does seem a little unjust.
You’ll find more details of the Parkers’ study here. It’s important to note that these car tax changes only apply to new cars. Existing vehicles will continue to be taxed under the “old” regime.